Towns borrow, you pay

Just above the cash register at Sam's Auto Service, the owner has taped up a photo of his elderly father, a snapshot of his granddaughter and his property tax bills.

Owner Bassam Shaheen knows it may seem odd to tape up an old $53,000 annual tax bill. But he wants to show customers why his west suburban shop struggles to break even.

"Some people complain and say, 'Why is the (repair) bill so high?' I say, 'Here, look at the high taxes,'" Shaheen said.

His tax bill is the costly ramification of Illinois' largely hands-off approach to municipal debt — rules that are among the loosest in the nation.

A Tribune investigation found that the inner-ring suburb of Bellwood — littered with vacant storefronts and crumbling factories — now has among the highest municipal tax rates in the county while still drowning in debt.

Local officials boosted taxes while gambling tens of millions of borrowed dollars on failed real estate ventures tainted by insider dealings and allegations of misconduct.

The borrowing and gambling was completely legal — at least in Illinois.

Bellwood's fallout offers a cautionary example of how local politicians can amass enormous power unseen in many states — power that can be used to benefit the politically connected,nearly bankrupt towns and stick a generation with IOUs for which they had no direct say.

That's because Illinois law allows even the smallest of towns to tax, spend and borrow like the biggest of cities. Municipal advocates insist that home-rule power has largely improved towns, but the Tribune found suburb after suburb has gone deep in the hole over projects ranging from buying a roller rink to building condos— ventures far beyond the basics of building roads and sewers.

Tribune investigations this summer highlighted how Bridgeview residents must now heavily subsidize a $100 million-plus soccer stadium that enriches campaign contributors and how Rosemont's massive entertainment venues, built through debt, benefit insiders' friends and family.

In Bellwood, the cash infusion funded a real estate buying spree that involved more than 60 properties — from massive warehouses to deteriorating storefronts and homes. The easy money also fueled lavish contracts and high salaries for town officials overseeing a small, working-class suburb of mostly modest bungalows.

When the real estate market tanked and development plans evaporated, the town was stuck with $100 million in debt, a third of it in dangerous balloon-payment loans that left Bellwood at the mercy of banks to give the suburb more time to pay.

The village's tax rate is now so high it consumes close to half of the property tax bill there, fattening everyone's bills in the process, unlike most cities and villages that take a thin slice of the tax bill. The town also imposes the highest sales tax rate in the state — ensuring a hefty cut from shoppers too.

As the suburb's 19,200 residents struggle to help pay the tab, they are treated to a political sideshow and finger-pointing.

Three-term Mayor Frank Pasquale oversaw the borrowing and spending, but now he says two trusted advisers misled him or let him down. One was recently indicted for allegedly inflating his village pay, and the other was convicted of unrelated tax fraud.

Pasquale, who is paid $95,000 a year, declined to talk to reporters about the mess in his town, instead referring questions to his new staff.

Current village officials say they've done their best to right the ship. They've slashed budgets, slightly cut taxes this year and hope to refinance the debt in ways to avoid more tax hikes.But for local taxpayers, the damage is done.

Shaheen's tax bill dropped to $48,000 this year because his property value fell so sharply, but that still was not enough to undo years of hikes that he said forced him to cut staff and raise prices.

"I'm fed up with it," he said.

Those who study town finances say suburbs such as Bellwood risk taxing themselves into an irreversible cycle of decline — chasing out tax-weary residents and businesses as the bills pile up. Home values are already dropping more in Bellwood than nearly any other near west suburb.

Critics say Illinois' loose rules invite those dangerous conditions by eliminating fundamental checks and balances: Those borrowing the money — residents — may have little chance to vet the plans. And those lending the money — investors — may care little about the details, so long as the town leaders agree to boost taxes as high as needed to pay off the debt.

That's why Robert Bland, a Texas professor who studies and writes books on town finances, said Illinois shouldn't be allowing cities and villages to take such high-risk development gambles that, if they fall flat, would "basically steal the dignity of citizens in these communities and their economic well-being."

Free reign

Such power can be traced to a 1970 sea change in how Illinois oversaw its towns.

The state used to cap how much towns could borrow on the backs of taxpayers. Even for loans under the cap, the state forced cities and villages to put many "general obligation" borrowing deals before voters. The intent was to protect taxpayers from massive debt.

But local officials complained they needed easier ways to borrow. Chicago's first Mayor Richard Daley led the charge for municipalities to set their own rules. The result was the 1970 Illinois Constitution and a concept that transformed how the city and suburbs are governed: home rule.

It has let towns borrow as much as they want, and raise many taxes, all without direct voter input. Any town with at least 25,000 residents gets the power. Smaller towns can vote it in via a referendum measure.

In 1970, a third of suburban residents lived in towns with such power. Now it's two-thirds.

Some suburbs grew big enough for their leaders to automatically get the power. In others, village leaders persuaded voters to pass referendum measuresgranting it.

Sometimes advocates promised voters the new power would be used to tax outsiders more and residents less. Other times advocates vowed to use the new power to crack down on scofflaws.

The latteris how Bellwood joined the club.

By 1994, middle-class families were leapfrogging inner-ring suburbs in search of bigger homes off a vast highway network. Bellwood leaders complained that gangs were moving in and said home-rule power wasneeded to crack down on them. They promised the new power wouldn't hurt residents' pocketbooks.

But that promise would not be kept in the ensuing years by a new team of leaders who used the power for big gambles — gambles made as the trio faced their own allegations of abuse of power.

Big debt

Pushing the vision was Mayor Pasquale, who was first elected in 2001. A retired community college teacher, he would later be accused in a civil suit of, among other things, ordering village employees to harass a developer over a job for the mayor's son. The town admitted no wrongdoing but granted a large settlement.

Overseeing the day-to-day operations was town administrator Roy McCampbell. He would later be indicted for allegedly stealing more than $500,000 from the village by illegally padding pay — a charge he has denied.

Helping provide the master plan was consultant Anthony Bruno. A disbarred attorney and heavy campaign contributor, the west suburban rainmaker would later be imprisoned for tax fraud in deals unrelated to Bellwood.

In the mid-2000s, before those controversies, the trio pushed a plan of massive redevelopment to save the struggling village. And the saving didn't come cheap.

In a suburb where the average household at the time barely earned $50,000 a year, the town paid Bruno's small consulting firm more than that every month, on average.

Officials planned a train station at one end of town, anchoring new town homes and condos. On the other end of town would be a Wal-Mart, anchoring new retail. And in between would be pockets of new homes and storefronts to spark rebirth.

To address concerns about crime, 300 cameras would ring the suburb at a concentration never seen in Chicagoland, all tied to monitors at the police station. The mayor would get special protection, with cameras positioned at the front and back doors of his house and another watching from a nearby pole.

To help pay for it, the suburb took out multimillion-dollar loans and bonds — debt that, thanks to the suburb's beefed-up power, its leaders didn't need to have voters OK.

The Tribune analyzed all of the town's 60-plus real estate deals that cost a total of $40 million. For some of the biggest deals, the village paid more than appraisers said they should. In other deals, the town sold properties for less than appraisers said they were worth.

Among the deals:

•$22 million — millions above appraised value — in 2006 for a strip of industrial warehouses key to the new train station. As the plan fizzled, the town — now a landlord — also lost tenants who had been paying rent for warehouse space. Bellwood listed it for sale at $12.5 million before recently pulling it off the market.

•$2 million each for a small landfill and nearly an entire block of storefronts. Officials now say they never needed the landfill while the block of storefronts, some of them housing viable businesses, was leveled and sat fallow for years.

•More than $1 million for two buildings that officials then sold years later for less than $200,000 to a firm tied to one of the mayor's campaign contributors. Officials defended the sales prices as fair for properties needing considerable renovations.

The real estate market downturn wiped out large chunks of Bellwood's investment in the numerous properties, and most are still owned by the suburb. For the few properties that have been sold, the suburb has already locked in nearly $4 million in losses. Millions more in property is set to go to developers for free under current agreements.

Another $4 million was spent on the camera system the village has since said was so error-prone that it failed to capture images of crimes, incidents or accidents, prompting the village to sue the camera contractor. Village leaders have declined to tell the Tribune if the cameras have been fixed.

Other than the tax drain, there have been few outward hints of the heavy losses — or the mounting debt.

The figures are contained in routine, annual reports sent to the state comptroller and buried deep in the state website. Nobody in state government has been required to point out or question why Bellwood's debt rate and tax bills have skyrocketed.

In Illinois, that job is left solely to voters.

If residents had been able to keep close tabs, they could have computed figures that now make national experts gasp.

In 2000, the town's general obligation debt — the IOUs for taxpayers — was about 3 percent of Bellwood's equalized assessed property values. That has been typical of most Chicago suburbs. But the debt rate doubled in just two years, then roughly doubled again by 2005 and doubled again by 2006.

That's four times the debt rate Illinois permits for towns without home rule.

No limits

Michael Belsky has seen Illinois' loose system of borrowing from both sides, as a full-time municipal finance adviser and a former mayor of Highland Park. He said the current setup, at its worst, leaves officials with dangerously unchecked power.

"If someone doesn't use it with discretion," he said, "they've got a blank check."

The vast majority of states — including all of the largest ones — do not offer municipalities such blank checks.

Ken Small of the Florida League of Cities said he would worry if his state had Illinois' loose rules.

"It is like giving your teenager a credit card," he said.

In Illinois' home-rule municipalities, the onus is on voters to decipher the financial ramifications of what their local officials are doing. And even then, residents may only get a say come election time, and only if their local officials face competition on the ballot.

With no limits, some suburbs have dug themselves further into debt with what can be shaky plans for economic development.

Among them:

•Officials in south suburban Markham raised sales and property taxes while borrowing $20 million mostly to buy a roller rink and build a senior apartment building — the latter named after the mayor.

•Northlake borrowed $14.5 million to build a 60-unit condo building that opened in 2009. The town cut prices and even helped finance mortgages, but about 20 units remain unsold.

•Country Club Hills built an amphitheater that doesn't make enough to cover debt payments and typically loses $300,000 to $1 million a year, depending on what expenses are counted.

Some suburbs with lower debt rates alsohave taken big borrowing gambles without going directly to voters for approval. Bolingbrook built a golf course and plush clubhouse.Hoffman Estates tied taxpayers to a sports arena. And Schaumburg built a $240 million hotel and convention center. All those ventures have struggled at times.

In suburbs with big budgets and big tax bases, losses on such projects may not devastate the bottom line. But in smaller or poorer suburbs, such as Bellwood, bad gambles eat up bigger chunks of the budget and leave little choice but to boost taxes.

The effects can be seen in Steven Stratton's tax bill.

Steep costs

In a beige-brick industrial building, Stratton runs a hat factory started by his grandfather. It's the largest maker of uniform hats in the country, specializing in the iconic Smokey Bear hats worn by state troopers and drill sergeants.

The building hasn't changed much since the company moved there in 1974. Yet the tax bills have.

In 2002, Stratton paid about $57,000, with a third going to Bellwood. This year, he has been billed $76,000, with close to half going to Bellwood.

Stratton has one word for it: "ridiculous."

Village leaders point fingers at Bruno and McCampbell. Bruno, now out of prison, declined to comment. McCampbell, awaiting trial, said through his attorney that he was just following orders.

McCampbell's replacement is Peter Tsiolis, who said the village has turned a corner and hopes it can keep taxesflat or even reduce them. The town is not considering bankruptcy or a state takeover — either of which can be hard to do anyway, under Illinois law.

As proof of the comeback, he points to the suburb seeking half a percent less in property taxes this year than last year. Still, this year the average homeowner was billed about $1,700 in taxes just for the municipality, not for schools or other taxing bodies, according to a Tribune analysis. That's more than double what the average Cook County suburb charges its residents.

It follows a decade in which Bellwood raised property tax collections 135 percent, nearly twice the rate of the average suburb, according to county data. The trend has left Bellwood residents paying far more in property taxes for the same kinds of services than wealthier residents in other towns. For example, the owner of a $100,000 Bellwood home pays almost twice as much for police, fire and other municipal services as the owner of a $300,000 home in La Grange.

As taxes have risen in Bellwood, the town's residential property values have declined faster than almost all their neighbors'.A Tribune analysis of county assessment data found the average owner-occupied Bellwood home is now worth less, in the eyes of the county, than the average home in any of the communities surrounding Bellwood, including Stone Park and Maywood.

That has had an effect on businesses, which must shoulder more of the tax burden.

For Shaheen, the tax hikes persuaded him to stop investing in Bellwood: "I'm aggressive. I like to invest. But it (high taxes) kills your energy."

For Stratton, the tax hikes have left him in a bind. He's thought about leaving but worries his aging, specialized equipment could break in transport.

In other words: He's stuck, sandwiched between demolished buildings the town bought and a vacant business along a small road that bears a street sign honoring Stratton's family business.

Stratton knows other businesses aren't stuck. Noting the numerous "for sale" signs lining the commercial and industrial strips in Bellwood, he said: "They taxed them right out of here."

Embattled College of DuPage President Robert Breuder asked for $1.5 million and several other perks in exchange for retiring early — demands the school's board of trustees soundly rejected before going on to award him a less lucrative buyout package that nonetheless sparked public backlash.

In the affluent Northfield Township High School District 225, many administrators and teachers alike earn six-figure salaries and dozens of educators have gotten big pay hikes just before retiring, a way to boost their pensions.

When Illinois lawmakers voted to legalize video gambling six years ago, supporters hailed it as a way to boost state revenues and end decades of illegal video gambling that had long been a lucrative enterprise for organized crime.

At a time when Republican Gov. Bruce Rauner has frozen state spending and cut the budget, a $35 million state grant got paid in full last month to help build a 1,500-student school in the district of House Speaker Michael Madigan.